For the following findings, indicate the income statement and balance sheet accounts that are affected and whether these accounts are over or understated, and provide an adjusting entry to correct the misstatement, if required. Assume a December 31 year-end.
a. Outstanding cheques totaling $44,000 were deducted from the cash balance on December 23, but deliberately not mailed out to avoid a bank overdraft over the holidays. The cheques were in payment of various raw material supplier accounts.
b. Sales of $79,000 were recorded on goods that were shipped after year-end and included in the year-end inventory count. The cost of these goods is $53,000.
c. A lawyer’s bill for services rendered in November was not paid or accrued.
d. The allowance for bad debts has a credit balance of $80,000. The accounts receivable balance is $150,000, and a reasonable estimate is that all but $10,000 of this will be collected.
e. As of December 31 the company has recognized $250,000 of revenue on a $750,000 contract to construct a bridge. The construction work has not yet started, but $40,000 of building materials for the job were received and expensed as contract costs. At this point, the company has not been able to estimate the total costs of construction.